For Computation of profit linked deductions under Chapter VI-A, depreciation has to be mandatorily reduced even for assessment years prior to Finance Act 2001 inserting Explanation 5 to Section 32

Supreme Court’s own judgment in Mahindra Mills 243 ITR 56 which was sought to be nullified by above amendment can not help assesse in escalating profits because

(Para 18)”………….. Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted………………”

Plastiblends India Ltd. [2017] 86 137 (SC) 09-10-2017

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